AEP coal piles swell due to mild weather, cheap gas

American Electric Power (NYSE: AEP) said April 20 that a combination of fuel switching and mild weather has swelled its coal piles.

AEP, one of the nation’s largest coal-burning utilities, said in a quarterly earnings call that its system-wide average coal inventory was 45 days as of March 31 of this year.

AEP’s natural gas consumption increased about 62% in the first quarter of 2012 compared to the first quarter of 2011. Excluding the Dresden gas plant, which came online during the first quarter, AEP’s average capacity factor for its combined-cycle gas plants in the East was about 85%, according to its earnings presentation.

AEP CEO Nick Akins said AEP has built or purchased about 5,000 MW of additional natural gas capacity in recent years. It recently retired one of its Sporn coal units and should retire several thousand megawatts of additional coal capacity in the next few years. The timing will be affected by both market factors and possible compliance extensions for tougher EPA standards, Akins said.

Heating degree days were 37% lower than the prior year (1,608 in 2012 compared with 2,546 in 2011) and were 31% below normal. The weather-related decrease in retail gross margin and reduced customer count brought by supplier choice in Ohio’s competitive electric market were partially offset by improved rates in several regulated jurisdictions.

AEP reported 2012 first quarter earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $389m or 80 cents per share, compared with $353m or 73 cents per share in first-quarter 2011. Ongoing earnings (earnings excluding special items) for first-quarter 2012 were the same as GAAP earnings, compared with $392m or 82 cents per share in first-quarter 2011.

Akins said AEP is holding its own despite a mild winter and continuing uncertainty about the transition to competition in Ohio.

“We support Ohio’s decision to move to competition provided there is a reasonable transition,” Akins said in the earnings news release. “The modified Electric Security Plan we filed in Ohio last month addresses the concerns expressed by customers and regulators while providing financial stability and certainty for the company during the transition to a fully competitive market.”

In light of a decision by the Public Utilities Commission of Ohio to terminate the previously approved stipulation agreement in February 2012, management is not reaffirming its 2012 ongoing earnings guidance of $3.05 to $3.25 per share, AEP said. 

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.